USTR considers non-binding dispute settlement mechanism in NAFTA

USTR CONSIDERS NON-BINDING DISPUTE SETTLEMENT MECHANISM IN NAFTA: The United States is considering dropping a binding mechanism in NAFTA for resolving government-to-government trade disputes in favor of a softer advisory system, sources following the talks told Morning Trade.

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The proposal, which would be a major shift away from a decades-old push by the U.S. to build an international system of enforceable trade rules, is already raising concern across the executive branch and on Capitol Hill. It was also one of several proposals that was sent to Congress this week for review ahead of the third round of formal NAFTA negotiations slated to begin this weekend, along with a “sunset provision” that would automatically terminate the deal after five years unless all three countries decide to renew it.

The dispute settlement shift would also include a change to Chapter 11 of NAFTA, which allows private investors to sue member governments over actions that they believe unfairly discriminate against their investment. The proposal would allow countries to opt into the system, essentially making it voluntary.

A USTR spokeswoman said late Wednesday they had no announcements to share at this time. But U.S. Trade Representative Robert Lighthizer himself spoke longingly of the previous non-binding system of dispute settlement earlier this week when he spoke at the Center for Strategic and International Studies.

"There was a system where you would bring panels and then you would have a negotiation," Lighthizer said, recalling his time as deputy USTR in the 1980s during the Reagan administration. "And, you know, trade grew and we resolved issues eventually. ... It’s a system that, you know, was successful for a long period of time." Read the full story from Pro Trade’s Doug Palmer here.

** A message from ACTION for Trade: A modernized NAFTA must strengthen intellectual property protections and commit countries to value American innovation and creativity. Negotiators should ensure the global economy rewards innovators and protects creative assets. Learn more: actionfortrade.org**

NAPOLITANO: 500,000 CALIFORNIA JOBS AT RISK IF NAFTA TERMINATED: Former Arizona Governor and ex-Homeland Security Secretary Janet Napolitano defended NAFTA and other U.S. trade agreements in an interview with Morning Trade, flatly rejecting the Trump administration’s assertion that they have been harmed the United States.

“I think the facts are otherwise,” said Napolitano, who is in Washington today to co-host a one-day forum on NAFTA and U.S.-Mexico relations. “They have helped support and sustain industries and I think it’s incumbent on those who believe in international trade and its value in a global economy to speak out and put it in its factual context.”

Earlier this week, Lighthizer said he disagreed with analysts who contend “the prevailing world trade policy has been great for America” and the only problem U.S. officials really need to think about is how to better communicate that trade success story to the American public. As a result, he said, the United States needs to use all the tools at its disposal to level the playing field for U.S. companies, including renegotiating trade deals like NAFTA.

Napolitano, who is currently president of the University of California, said terminating NAFTA — as President Donald Trump has said he might do if the United States, Canada and Mexico cannot reach a new deal — would be damaging to the United States, from both an economic and national security perspective.

In California alone, “there are 500,000 jobs that are directly linked to trade with Mexico. So anything that disrupts that trade relationship would have a direct impact on those jobs,” the Democratic former official said, referring to figures compiled by the Woodrow Wilson Center.

“Facilitating lawful travel and trade between the United States and Mexico is part and parcel of security, and to take away NAFTA in the relationship would have a negative impact on our joint security efforts,” she added.

CHINA DEFENDS ITSELF AGAINST LIGHTHIZER’S IRE: Beijing is pushing back against Lighthizer’s pointed remarks earlier this week that China represents an “unprecedented” threat to the world trading system. The nation blasted the criticism as “untenable” and noting that “it’s actually the U.S. that acts unilaterally.”

“As U.S. trade representative, Lighthizer should exhibit more common sense knowing that trade isn't sustainable if one side keeps profiting from the other,” the Chinese state-run media outlet Global Times wrote in an editorial. “Washington doesn't need to act as if it has been taken for a ride.”

The harshly worded piece tore Lighthizer’s arguments apart and turned his threats back onto the United States, accusing Washington of taking action that has led it to be a defendant in nearly a quarter of cases brought to the WTO. “It is the U.S.'s degeneration from leader of the international trade system to destroyer-in-chief that represents an unprecedented threat to global trade,” the piece read.

“Lighthizer better not think he can make China yield just because he leads a probe into alleged intellectual property violations,” it continued, referring to the recently launched Section 301 case. “China won't easily fall victim to US bullying. Beijing also has sticks behind the door.”

CHINA TOPS TREASURY’S CFIUS LIST, AGAIN: In other China news, Beijing topped the list of foreign entities seeking U.S. government national security approval to invest in the United States in 2015, according to a Treasury Department report released Wednesday. Filing 29 notices of acquisition with the Committee on Foreign Investment in the United States, Beijing beat out Canada and the U.K. — which filed 22 and 19, respectively — for the No. 1 rank, where it has sat for the third straight year.

Of the 143 transactions submitted in 2015, CFIUS investigated 66 to determine whether the panel should recommend to then-President Barack Obama to block the deal on national security grounds. Of those, 11 transactions required "mitigation" steps to resolve national security concerns. Read more here.

IT’S CETA DAY: Eight years after the start of negotiations -- and a multitude of crises, renegotiations and additional declarations later -- the free trade agreement between the European Union and Canada provisionally starts today. All chapters of the deal, known as the Comprehensive Economic and Trade Agreement, or CETA, entered into force at midnight except for one: the controversial Investment Court System that would allow foreign investors to sue governments over allegations of discrimination or expropriation.

To be sure, the CETA saga isn’t over: To fully enter into force, CETA needs to pass 42 national and regional parliaments in 28 EU countries. Each of them has the power to block the accord, although legal opinions differ over whether a ‘no’ would just prevent the ultimate application, ergo the investment protection system, or whether it would also force the EU to end the provisional application. So far only six countries have finalized the ratification: Latvia, Denmark, Malta, Croatia, the Czech Republic and, just on Wednesday, Portugal. The debate remains heated particularly in Portugal and Austria.

Still, its entry into force is a boon for Canada, which has pointed to CETA and other deals in the works as reasons it is not willing to bend over backward to the United States’ will when it comes to the ongoing renegotiation of NAFTA.

U.S., EU TO INK INSURANCE DEAL: The United States and European Union are close to signing an agreement negotiated during the Obama administration that would attempt to smooth over trans-Atlantic conflicts in insurance regulation, POLITICO’s Zachary Warmbrodt reports. Sources following the talks expect it to be done Friday.

Trump's Treasury and USTR announced in July that they would follow through with the agreement and release a policy statement on implementation, which the insurance industry will be watching closely.

TRUMP SENDS AFRICA A SHOW OF SUPPORT: Trump expressed interest in boosting America’s commercial ties to Africa on Wednesday when he convened a working lunch with African leaders. He lauded the continent for its “tremendous business potential,” adding that he has “so many friends going to your countries, trying to get rich.”

“Increasing American trade and investment across diverse industries -- including agriculture, energy, transportation, healthcare, travel, and tourism -- will further transform lives throughout the continent,” Trump said at the New York lunch on the sidelines of the U.N. General Assembly. “Secretary [of State Rex] Tillerson and the U.S. Millennium Challenge Corporation are already considering an investment worth hundreds of millions of dollars in Côte d’Ivoire, which has made impressive economic reforms. Really, you've done a tremendous job.”

NAM BACKS A TERRITORIAL TAX: The National Association of Manufacturers is urging the Trump administration and top tax writers in Congress to forge ahead with proposals for a so-called territorial corporate tax system, or one that taxes foreign earnings only where they are earned, and not again when they are brought back to the United States. The White House and Hill Republicans have said they like the idea, which would affect multinational corporations.

“We have to stop punishing U.S. companies, which have already stuck with us in the face of a punishing tax code, when they reinvest overseas earnings back into the United States,” NAM President and CEO wrote in an op-ed Wednesday in RealClearPolitics that argued that “tax reform must go bold.”

“American-based companies are double-taxed on overseas earnings brought back home while foreign-based companies are not,” he continued. “We need to fix this by moving to a territorial tax system like the rest of the world, so more companies can invest in American workers and facilities without paying a steep price for doing so.” Read more here.

TODAY IN INFLUENCE: AKIN GUMP RAMPS UP ITS TRADE TEAM: The powerful lobbying firm Akin Gump Strauss Hauer & Feld has added seven new clients -- the most notable of which in trade circles are Whirlpool and ACTION for Trade, a new coalition working to influence trade policy. POLITICO Influence’s Theodoric Meyer reports that Akin Gump picked up Justin McCarthy to lobby for Whirlpool on tax reform, trade policy and NAFTA.

Brian Pomper, Josh Teitelbaum, Steve Kho and McCarthy will lobby for American Creativity, Technology & Innovation Organizations Network for Trade, or ACTION for Trade, which describes its mission as ensuring that "U.S. trade policy protects creativity, advances innovation, and prevents foreign countries from stealing intangible assets developed by American workers." Its members include the Authors Guild, the Biotechnology Innovation Organization, the International Anti-Counterfeiting Coalition, the Motion Picture Association of America, Oracle, PhRMA, Qualcomm and the Recording Industry Association of America. The group is set to hold a formal launch event on the Hill next week.

POLL: CANADIANS RANK ENVIRONMENT AHEAD OF NAFTA: A majority of Canadians believe Canadian Prime Minister Justin Trudeau and his administration should walk away from talks to renegotiate NAFTA if they feel that the updated deal will hurt the environment and the country’s population more broadly, a new poll out of Canada shows.

The EKOS Research poll conducted for the Council of Canadians showed that more than three-quarters of those responding — regardless of political leaning or what part of the country they were from — agreed Canada should walk away if the new deal hurts the environment or Canadians. “Most people don’t want the Trudeau government to sacrifice water, the environment, public services and democracy on the altar of NAFTA,” Sujata Dey, trade campaigner for the Council of Canadians, said in a statement.

INTERNATIONAL OVERNIGHT

— Jeff Gerrish, Trump’s pick to serve as a deputy U.S. trade representative, who is currently awaiting confirmation from the Senate Finance Committee may have voted illegally in Virginia in last year’s presidential election, the Washington Post reports.

— House Small Business Chairman Steve Chabot has formally requested a briefing with the FBI director over whether Huawei may be spying on U.S. small businesses in the telecommunications sector, POLITICO Pro reports.

— Ahead of Trump’s visit, China is cracking down on violations of patents and trade secrets to reassure investors and appease foreign companies, the AP reports.

— Cui Tiankai, China’s ambassador to the U.S., said Trump’s upcoming visit to Beijing will help avoid a “trade war, currency war or whatever war,” the South China Morning Post reports.

** A message from ACTION for Trade: Americans support a NAFTA that better protects and values U.S. inventions and creativity. A pro-innovation environment means higher wages, better jobs, more exports and faster economic growth. A modernized NAFTA should promote market-based pricing and reimbursements systems, provide world-class protection for innovative medicines, deliver effective enforcement of copyrights online, and more forcefully confront counterfeiting and commercial piracy. Protecting innovative and creative works in U.S. trade agreements is essential for America’s economic prosperity and competitiveness. Learn more: actionfortrade.org**

About The Author

Megan Cassella is a trade reporter for POLITICO Pro.

Before joining the trade team in June 2016, Megan worked for Reuters based out of Washington, covering the economy, domestic politics and the 2016 presidential campaign. It was in that role that she first began covering trade, including Donald Trump’s rise as the populist candidate vowing to renegotiate NAFTA and Hillary Clinton’s careful sidestep of the Trans-Pacific Partnership.

A D.C.-area native, Megan headed south for a few years to earn her bachelor’s degree in business journalism and international politics at the University of North Carolina at Chapel Hill. Now settled back inside the Beltway, Megan’s on the hunt for the city’s best Carolina BBQ — and still rooting for the Heels.